Is the emerging trading pattern stable?

CHINA FINANCIAL - Report 19 Sep 2025 by Michael Pettis

Special points to highlight in this report:

The fight against involution seems to be working. Price declines moderated in August while most measures of production were below expectations. The question is whether Beijing can repress involution while still maintaining GDP growth targets, or will simply force excess capacity out of the involuted areas into other sectors of the economy.

While there seems to have been a huge shift in global trade patterns this year, in fact we have merely shifted from one unstable pattern to another unstable pattern. As long as rising US deficits accommodate—whether directly or indirectly—rising Chinese surpluses, nothing fundamental has changed. The real change will only come once Washington figures out how to reverse growing American trade deficits.

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